Every market crisis seems unique

Published in The Sunday Times on 20th April 2025.

In 1991, Warren Buffett became the unlikely saviour of Salomon Brothers, one of Wall Street’s top investment banks, after a major Treasury bond bidding scandal threatened to destroy the firm. Buffett was asked to step in as interim chairman and CEO during the crisis. In an effort to restore integrity and trust — both inside the firm and with regulators - he delivered the following line at a dramatic congressional hearing:

“Lose money for the firm, and I will be understanding. Lose a shred of reputation for the firm, and I will be ruthless.”

The Salomon saga cemented Buffett’s reputation as an investing sage with an uncompromising stance on integrity.

Integrity, intelligence, and energy 

I’ve been thinking a lot about this lately. Integrity was central to everything Buffett has done in his career. He famously stated, “Somebody once said that in looking for people to hire, you look for three qualities: integrity, intelligence, and energy. But if you don’t have the first one, the other two will kill you.” 

Regrettably, Donald Trump seems to have energy to burn. 

There are many that seem to think (or wish) that there is some master plan behind Trump’s tariff strategy. In trying to understand the tariff chaos of the last few months, I have squandered much time, and am very sceptical that there is any grand plan. The implicit assumption in the formula applied to his trade policy is that it should balance with every single partner. There is no school of thought that could explain his actions. It is utter nonsense.

Markets are unnerved and have been in a spin-cycle ever since. Opinion as to what prompted his about turn on 9th April is divided, but the most likely suspect is the reaction on bond markets, which were beginning to show signs of distress. With $10 trillion of bond refinancing due this year, it’s likely this got Trump’s attention.

There’s more to run in this saga I suspect, but for the time being the stock market has breathed a huge sigh of relief. However, investor nerves are still frayed. As a client said to me this week – we’ve never seen anything like this, I’m very concerned. I think that’s a fair assessment, every crisis does seem unique.

Every market crisis seems unique

It reminds me of Tolstoy’s “Anna Karenina” principle— “All happy families are alike; every unhappy family is unhappy in its own way”. Bull markets seem to have many common attributes; they thrive on clarity, when central banks are on board, earnings are good and money is flowing. Each bear market, however, seems to be “unhappy in its own way”. 

Failure is diverse and chaotic, so stock market crises come in a variety of forms. When the investing seas are calm, we imagine that when the next sell-off arrives we will have the resilience to withstand the selling pressure or even buy the dip. When it arrives, with a different colour and hue to prior episodes, confidence evaporates. 

This crisis is unique ‘in its own way’, and there are many imponderables, but there are certain things we do know about stock markets – which in times like this, serves us well to remember. 

A few things we do know about stock markets

Firstly, market prices are far more volatile than is justified by the changes in the underlying fundamentals of a business.  Be mindful that when investing in a fund or an ETF, it’s a collection of businesses you are buying – the fundamentals matter and don’t change as much as prices. For investors lucky enough to be sitting on cash or short-term bonds — Warren Buffett being a prominent example — the prospect of further declines will urge them to buy rather than sell. So as trite as it may sound, there is genuine opportunity in periods of heightened volatility. 

Secondly, despite the uniqueness of each crisis, there is an investing playbook to draw upon. We’ve looked back at prior crises (Covid, great financial crisis, dot-com etc). Even with exceptionally poor market timing - investing on the eve of each of these episodes - the stock market has proven its resilience and annualised returns since have been strong.
 

Figure 1: Market timing and the importance of a long-term investment horizon

Source: Bloomberg, annualised total return through 31/12/2024. Returns pre-1980 are based on price return only and do not include dividends. Dates used: Black Monday – October 1987, Asian Crisis – July 1997, Dot-com bubble - March 2000, GFC – July 2007, Covid – February 2020  Returns shown are based on investing before each event and holding until 31/12/2024. 
 

Finally, back to Buffett. His purchase of the Washington Post in the early 1970s is instructive about hot to think about risk. He bought a portion of the company when it was valued at $160m.  The stock subsequently halved in price. 

Buffett was confident the business was worth $400m so the decline had simply increased his margin of safety. Traditional measures of risk – volatility - would have defined the stock as being more risky after the decline than before. How could it be more risky at $80m than $160m, he mused. He later remarked that it was one of the best investments he ever made — not just financially, but because of the relationship and what he learned from Katherine Graham, the Post’s CEO.

Don’t ignore the volatility, embrace it

Stock prices have fallen a lot in the last 5 weeks – and recovered a lot since. Letting increased volatility steer you away from stocks is a sure way to lose your edge in this market. At 94 Buffett may lack Trump’s energy, but amidst the current chaos, we could do with his integrity and intelligence right now.
  

Source: Data is sourced from Bloomberg as at market close 31st December, returns are based on total indices in local currency terms, unless otherwise stated.

Gary Connolly is Investment Director at Davy. He can be contacted at gary.connolly@davy.ie or on X at @gconno1.